Financial Globalization

In our contemporary period, the financial markets of different countries are becoming increasingly intertwined. This is due largely to the fact that many financial institutions are now going worldwide in its operations. Such financial institutions (hereafter, referred to as FIs) include Citigroup, Fortis, HSBC, Deutsche Bank and Royal Bank of Scotland. Although this can provide significant benefits, for example, in the form of easier and faster money transfer from one country to the next, this also entails significant risks, such as the adverse effect that the bank would entail on the economy of the country when it is incurring internal problems or is affected by a financial crisis in one of the countries where it is operating. Before proceeding to the benefits and risks of having a globalized financial system, this paper would first present the factors contributing to the globalization of finance, as well as the effect of such globalization on the economy and financial systems of various countries.

Hausler (2002) provided four main factors driving the globalization of finance: advances in information and computer technologies, the liberalization of national financial and capital markets, competition among the providers of intermediary services and the globalization of national economies. Advances in information and computer technologies enabled FIs from all around the world to communicate easily and carry-out transactions instantaneously. In addition, this also allowed them to obtain real-time news regarding their investments and other pertinent factors. Hausler (2002) explained that the liberalization of national financial and capital markets resulted to a tremendous increase in cross-border capital movements. He indicated that this is partly a response to the demand of having an intermediary for cross-border transfer of funds. Such demand is primarily driven by overseas workers who wanted to send remittances to their families. Finally, the increased competition among providers of intermediary services had spurred many FIs to seek profit outside the domestic market. According to Hausler, the increase in competition is due largely to regulatory authorities relaxing the rules on financial intermediation, which gave rise to numerous companies like money market mutual funds, investment brokers and insurance companies.

Hausler (2002) mentioned that the globalization of national economies enabled companies to conduct economic activities that span the entire world. He indicated that “today, the components of a television set may be manufactured in one country and assembled in another, and the final product sold to consumers around the world.” From a FI’s perspective, this means that they can have more flexibility by obtaining deposits from anywhere in the world and use those funds to finance the most promising investments that they could find. However, it is important to remember that despite of the many options available to an FI, it should guard itself against increases in risk arising from its diversified investments. Such risks include credit risks, interest rate risk, foreign exchange risk and sovereign risk.

The rise in a globalized financial system had severely weakened the ability of monetary authorities to control the value of a country’s currency in relation to others. In addition, it also created the problem of “capital flight,” where investors quickly withdraw their investments in one country at the first sight of economic trouble. Hence, countries that rely heavily on foreign investments to stimulate the economy should guard itself against news that would adversely affect the investors’ perception regarding the country. Finally, another problem posed by having a globalized financial system is that problems faced by FIs in other countries may negatively impact the country’s economy and financial system, as well. In 1997, the collapse of the Thai Baht as a result of the Thailand government choosing to float the baht led to the Asian financial crisis. A more recent and more severe predicament is the 2008 financial crisis, which had started in the United States and spread all throughout the globe. This is primarily due to the fact that most FIs from various countries had their investment in U.S. banks, particularly Lehman Brothers Holdings Inc. For this reason, the collapse of U.S. banks as a result of subprime mortgage lending spread the crisis throughout the globe.

Having a worldwide interconnected financial system can bring significant benefits to diverse parties. For companies, Hausler (2002) provided that a globalized financial system would enable them to obtain financing from various sources, which would lower their cost of funds and also address the risk of “credit crunch.” When domestic banks are short in funds, the cost of borrowing would normally rise. However, with a globalized financial system, companies can simply weigh the cost of borrowing from the domestic institutions against the interest rate provided by foreign FIs. In addition, companies could simply issue stocks, commercial papers or other securities to either the domestic or foreign market in order to obtain funds. Hence, a globalized financial system would exceptionally increase the bargaining power of companies in negotiating the terms of a loan with banks, which would decrease their cost of debt. For individuals, the globalization of the financial system would enable them to transfer funds from one country to another instantaneously. In addition, this would also help facilitate the purchase and sale of items through the internet, since there would be financial intermediaries that would ensure the fulfilment of the transaction. For countries, Schmukler, Zoido and Halac (2003) mentioned that the globalization of finance would develop the financial system of developing countries. They explained that this is due largely to “new sources of capital made available to developing countries and better financial infrastructure, which mitigate information asymmetries and reduce the problem of adverse selection and moral hazard.” In contrast, Schmukler (2004) provided that the increased competition due to the entry of international financial intermediaries would result to efficiency gains on the part of local FIs, as well as “push the country’s financial sector towards the international frontier.” Thus, globalization of finance is beneficial to individuals, companies and the country at large.

Although the globalization of finance provides significant benefit to different groups of people, it also poses enormous risks to various stakeholders. In fact, the 1997 Asian financial crisis and 2008 global financial crisis were some of the catastrophe that arose out of the interconnection between the financial sectors of numerous countries. For individuals and companies, the globalization of finance increases the insolvency risks of FIs, which could sweep-off majority of their investments on the said institution (except for the insurance provided by the government, such as the Federal Deposit Insurance Corporation in the United States and Philippine Deposit Insurance Corporation in the Philippines). Insolvency risks are often the result of one or more risks faced by the FIs that had severely worsened. Such risks, as earlier mentioned, include credit risks, interest rate risk, market risk, foreign exchange risk and sovereign risk. On the other hand, a country might get affected by the financial crisis faced by other countries, which may disrupt the growth of the country’s economy. Hence, even though the globalization of finance provides several important benefits, FIs and other stakeholders should be aware of the risks exhibited by such a system.

As a consequence of the increased dispersion of people to different countries, the interconnectedness of the world’s financial system is becoming more and more essential. Because of the increased demand for an international financial intermediary to facilitate the remittances of migrant workers, it can be anticipated that the globalization of the financial system of various countries would continue in the future. Governments, however, should be vigilant on the risks posed by such a system, as it could not only paralyze a country’s economic operation but it could disrupt the entire financial system all throughout the world. Hence, governments and regulatory agencies should impose guidelines and rules on banking and financial intermediation practices, such as the current restriction imposed upon U.S. banks to limit their investments to investment-grade bonds, maintain a certain minimum equity and mark-to-market the value of their investments (as of the date of the balance sheet). Hence, with the appropriate rules in place and increased coordination among countries, the risks possessed by such a system could be alleviated and, eventually, curtailed in the future.

References

Hausler, G. (2002). The Globalization of Finance. Finance and Development, 39(1). Retrieved from: http://www.imf.org/external/pubs/ft/fandd/2002/03/hausler.htm

Schmukler, S., Zoido, P. & Halac, M. (2003). Financial Globalization, Crises, and Contagion. Retrieved from: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.200.3215&rep=rep1 &type=pdf.

Schmukler, S. (2004). Benefits and Risks of Financial Globalization: Challenges for Developing Countries. Retrieved from: http://siteresources.worldbank.org/DEC/Resources/Benefitsand RisksofFinancialGlobalizationSchmukler.pdf

Globalization and Migration

            Globalization is a process that affects the traditional territorial political space and its associated claim to sovereignty. It represents implications like the decline in the significance of territoriality and state structures, yet it also implies an increase and amplification of worldwide connectedness as well as the consciousness of the phenomenon. As Anthony Giddens defines it, globalization is “the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa” (Giddens, 1990, 64).

            Seeing it in a wider perspective, globalization connotes new practices and dynamics. Greater emphasis on capitalist integration is being experienced by the global population that may be seen in three principal ways: 1) global market discipline; 2) flexible accumulation through global webs and; 3) financial innovations. The essence of global market discipline is observed in the process by which economic agents internalize dominant standards of price, quality, and efficiency in worldwide context and apply them to their domestic markets. Flexible accumulation through global webs is described as the practice of establishing repetitive production (routine production) through the firms’ capacity to install and operate anywhere around the world in real time, and to maintain a close network structure of affiliated firms and production units ready to meet production requirements. Lastly, global financial innovation is the result of a growth in financial transactions that is higher that the growth of production and trade (Hoogvelt, 1997).

            In Giddens’ point of view, social practices such as international labor practices are classified as under the different dimensions of globalization, in addition to its role in the intensification of capitalism. He identifies the international division of labor as the world capitalist economy, the world military order and the nation-state system (1990). International migration in all was just the second category.

            Migration has been a key element that is influenced by globalization; however, it has seldom been equated in the analysis, has been rarely considered in discussions of globalization, or if they do, they deal with international migration only as a residual category, an afterthought (Stalker, 2000). Labor in any form, is often neglected in analyses concerning the levels of economic integration, this has implications for economic policymaking and development for it fails to considers labor as one of several significant indicators.

            Recent set of studies has sought to include as well as recognize labor as a key factor in facilitating global economic integration, for example, distinguishes various dimensions in which labor is connected to the global economy, as a factor taken or ignored by capital expansion, trade intensification, or wage differentiation. An interpretation of globalization in the context of migration is presented by Saskia Sassen (1996, 1999) which argues that a prevailing tension exist between the nation-state’s control of the borders and cross-border flows, and the enforcement of human rights and compliance with international norms.

            In Mittleman’s analyses of labor, he describes the current global political economy as composed by “a spatial reorganization of production among world regions, large-scale flows of migration among and within them, complex networks that connect production processes, buyers and sellers, and the emergence of transnational cultural structures that facilitate among these processes. As a response to his framework he calls the “global division of labor and power”, migration emerges in developing countries with people seeking better opportunities in industrialized countries by joining labor-intensive activities which does not require much skill. This cross-flow of migration, in effect, produces economic effects in the labor-exporting countries.

            Labor and its mobility is a fact of life notwithstanding outstanding policies and barriers of migration. Prakash and Hart, who believed that the incorporation of labor as a key category in analyses relating to economic integration, proposed three measures of integration of labor markets in the global economy: 1) the proportion of foreigners in the domestic workforce; 2) the ratio of the “domestic workforce in export-dependent industries and employed by domestic affiliates of foreign multinational enterprises and; 3) remittances. They argue that through remittances which contribute to the home country’s GNP and provide a valuable foreign exchange rates, migration, particularly labor mobility, facilitates economic integration. (Prakash & Hart, 2000)

            Worker remittances are defined as that quantity of currency that migrants “earn abroad and then send home to their families and communities (Kane, 1995). Adding the effects of remittances to the analysis of economic globalization produces a different pattern of economic behaviour. In some instances, evidence of the scope and depth of international labor dynamics can complement the traditional indicators of trade and investment.

            In a nutshell, neglecting the focus on labor dynamics as a factor in economic integration can misrepresent economic performance or distort measures of key economic indicators. It is therefore important to consider migration, specifically relating to labor mobility in economic globalization analyses.

References

Giddens, Anthony. 1990. The consequences of modernity. Stanford: Stanford University Press.

Hoogvelt, Ankie. 1997. Globalization and the postcolonial world: the new political economy of development. Baltimore: Johns Hopkins University Press.

Kane, Hal. 1995. The hour of departure: forces that create refugees and migrants. Washington: World Watch Institute.

Mittleman, James. 2000. The globalization syndrome: transformation and resistance. Princeton: Princeton University Press.

Orozco, Manuel. 2001. Globalization and migration: the impact of family remittances in Latin America. Miami: Florida International University.

Prakash, Aseem. Et. al. 2000. Indicators of Economic Integration. Global governance 6, 1 (January-March): 95-104.

Sassen, Saskia. 1996. Losing control: sovereignty in an age of globalization. New York: Columbia University Press.

Stalker, Peter. 2000. Workers without frontiers: the impact of globalization on international migration. Boulder: Lynne Rienner.

Climate Change in Relation to Poverty

            In nearly all areas of the globe, natural disasters and other climate extremes are increasing.  Moreover, more rapidly than ever known and experienced, the average global temperature and sea level are continuing to rise.  Climate change has been said to devastate all areas and aspects of natural resources and the environment, the socio-economic conditions, and the human health (Quang Hoc, 2008, p. 22).  According to Walker, Lin and Kobayashi (2009), these catastrophic occurrences have the impending ability to seriously disrupt economic growth and progress, especially in developing countries.  The Philippines, belonging in this category of developing countries, has felt these devastations in the recent years like the Tropical Storm Frank, which has killed more than 1,300 people in June of 2007 in 14 of the country’s regions, Iloilo being affected the most and has displaced 2.4 million people, and more recently, Tropical Storm Ondoy which hit Luzon recorded 243 deaths and affected 2,254,915 individuals and has left still many people homeless and wandering in the streets (Djoghlaf, 2008, Dizon & Guinto, 2008, Reyes, October 1, 2009).

Climate change is expected to have unfavorable consequences on the safety, health, and livelihoods of people with those suffering from poverty being first and most affected (Steffen, W., 2009).  The predicted climate change will be of hindrance to the imminent poverty reduction and will overturn numerous significant socioeconomic accomplishments of rising counties, like the Philippines. Even the most thorough alleviation will not be able to avert nearly upcoming climate change impacts because effects from past emissions are already set to transpire (Steffen, W., 2009).

The Intergovernmental Panel on Climate Change (IPCC) has warned that warming oceans could lead to the intensification of tropical cyclones.  In a warmer climate, the El Nino-Southern Oscillation (ENSO) events become stronger and more frequent.  | Tropical cyclones could become more intense.  When combined with sea level rise, this would result in an enhanced risk of loss of life and property in coastal low-lying areas in cyclone-prone regions. (Hoc, 2008)

Natural calamities and subsequent destruction wreaked on agricultural production cause immense losses to farmers in most countries in the Asia-Pacific region.  Farmers are not only deprived of their livelihood but are also burdened with the problem of setting their financial obligations for farm operations and investments.  This calls for intense adaptation actions to start over upcoming decades to lessen the impacts on communities that are in most danger of these effects (Steffen, W., 2009).

Rebuffing not the warming climate most especially in equatorial countries like the Philippines is rather necessary and practical to ensure the masses of sound solutions to inevitable disasters.  When coalesced with other effects, the consequences of the rising temperature will bring more damage than just drought as it moreover intensifies cyclones affecting more lives and properties.  In recognizing the many effects, disaster preparedness is but essential.  For centuries, people have tried to cope with natural calamities which we now term as risk management. 

Major weather disasters continue to wipe out families’ physical and financial assets.  By creating communities more resilient to the impact of major hazards, disaster management will prove its importance as a component to sustainable development. The solutions for adaptation strategies are to lessen the chances of climate change and to maintain, improve, and strengthen the livelihoods of people who are suffering in poverty (“International Institute”, 2003, p. 12). Moreover, it states that these strategies require deep knowledge of how people in poverty maintain their livelihoods, the function of natural resources in their day-to-day livelihood actions, and the extent of adaptation measures that lessen weaknesses and increase resistance of people who are suffering from poverty.  Bugna-Barrer (2008) reiterates that damages to livelihood and property can affect millions of already poor people causing the government to have a hard time generating the adequate amount necessary to help those who are affected.  Although farmers in general have adapted to most of these risks by employing various devices and looking for other means on their own or with the support of the government to prevent and/or cope with them, the problem of lingering risks persist and cannot be denied (“National Productivity”, 2007).

The Inconvenient Truth

            The video that was shown in class which is entitled, “The inconvenient truth”, really opened my eyes and made me realize the declining status of our world in every aspect. Most people may not notice it but the progression of the place that we have lived in for our whole life has lately been on a rapid downfall. Making us Global Development (GLOBDEV) students watch that film reminded me of the roles and responsibilities needed to be done in society which is crucial in salvaging what’s left of our home.

            One of the main scenes in the video that struck me the most was the part wherein they showed a polar bear with no land to go to, except water. The animal has been travelling for miles and still it has not found a place to rest. The reason for this is the increasing global warming problem of the world. A portion of our atmosphere is being destroyed every second that passes by and until we do something about it there will just come a time wherein even we, humans, would have a hard time finding a place that we could all live in and call home. A small part in the film explained the change of temperature’s effect on us and the different parts of the world. One degree Celsius of increased temperature that we countries near the equator face is already equivalent to twelve degrees Celsius increase in temperature in the North and South Pole. What this implies is that the ice that has been there for thousands of years is starting to melt in a very quick pace. This is the reason why the polar bear that was shown in the early part of the film was having problems trying to find ice/land where it could rest upon. The statement that the host mentioned in the video that has stayed in my mind until now is the declaration that climate change is not really a political issue but rather a moral issue. I strongly agree on this idea because the life and well being of everything around us is really in our hands. People now are starting to be disrespectful and ungrateful of the gift that has been given to us. Having this way of thinking would definitely not help the issue of global warming and climate change that has started to affect us. We may not see what this problem is doing to us right now but eventually we would feel how huge of a problem this is to us and how this kind of problem could change our lives entirely.

            This kind of problem, I believe, cannot be controlled by external environments such as the government because this can also be considered a personal issue. The way we act and handle our decisions greatly contributes to what is happening right now. Let us all keep in mind that every decision we make has a very important effect to our environment and the people around us.

            One thing that I really find amazing and helpful about the film is it ended the whole video with several suggestions on how we can help fight off the changes that have been occurring around us particularly global warming. Not only did it made us see what the status of our world really is but it also gave us ways in which we can, in our little way, help in aiding the situation that we are now in. Nowadays, you would rarely see a documentary dedicated to an issue very important like the one discussed in the video and so I think that viewing this video is very crucial in helping us especially the younger generation to have an extra motivation in trying to save the world that we have lived in our whole life.

            It has been a noticeable trend the past couple of decades that people usually do what everyone else is doing. This is where the term “bandwagon” came from. Initially, I first thought of the term as a very negative idea since I strongly believe that each individual has his/her own beliefs and personality which enables them to choose what they would believe in. This mindset of mine changed when I realized that this could also be a positive thing when you use it to try and encourage people to do something that may positively affect the status of our world. A clearer example of this is by using media and this so-called bandwagon we can influence and encourage the citizens of today to try in helping fight the global warming woes that we have been experiencing the past few decades. Since most teens in our generations seems very interested in issues that attract a large amount of attention we can use that to our advantage by giving them seminars or talks to make them see how huge of a help they can be.

            No one can say that he/she is not a part of what’s happening today since every human being has a responsibility to what is currently happening in our environment. It is impossible for the problems to be solved by a mere group of environmentalists. Teamwork of each and every one of us is the key ingredient and answer to the challenges and obstacles that we are facing. It is actually wrong to look at these things as problems because sticking this idea to your mind will just add up to the pressure of trying to find the solution. We should look at them as challenges and obstacles that could help strengthen and improve our concern for everything that is surrounding us. A little action can go a long way especially if it is a contributed effort by a large amount of people. Every riddle has an answer and it just up to us to look for the answer. We may encounter some stress and frustrations along the way but let us not let them hinder us from accomplishing our goal. The only real threat that we should consider is ourselves. 

What makes an angry mob?

          Ochlocracy or “mob-rule” is often seen in the history books. As early as the Roman Empire where both the aristocracy and military were outnumbered by the populace of the citizens, they were to be fed and occupied in order to keep the rise and stability of the government. Mentions of oppressed masses were also seen in records but as the focus is often on the unequal distribution of power or abuse of it, the power of the “mob” is overlooked. Some may be unaware of how strong the masses could bend the will of the one in power. Like how The Salem Witch Trials were executed. Logic was over-ruled by the beliefs of the town’s people but what really does trigger an “angry-mob”? How does news spread like fire and reach hundreds in a short span of time? Leaving the past and moving forward to our technologically advanced century, mediation of information could happen in a blink of an eye.

          In the midst of poverty, corruption and exploitation happen in our developing country. Local media from time to time turns into a circus that entertains, amuses, awes and terrifies the rest of the world like a film. These same local media that claim unbiased news, loyal public service and credibility are the main streams of information that directly affect and manipulate the masses. As Debbie Lisle puts it in “[h]ow do we find out what’s going on?”, “[t]he information we get from it (media) is never neutral or innocent: it is always-always-biased”.  Yes, most of our countrymen believe everything they see on the local news, despite what logic suggests, the media could bend their thoughts toward a more fitting idea they desire. This is one of the consequences of our lack of education.

          As casted from Debbi Lisle’s article, “How do we find out what’s going on?”, there are two roles that the Biased Media plays: the mouthpiece that the Government wants them to be and the watch dog that the media would rather take on. The difference is illustrated in the “The Vietnam war” where it started to be the mouthpiece writing aligned the military policy but later on became a very critical watchdog of the US Government. This war was said to be the first television war. The Media had no restrictions taking footage every step of the way. This made the people turn against the war. Their negative reaction or what we could relate to the “mob-rule” affected the government in its activities. This in turn taught the US Government never again to let ends loose.

          The Media is a very powerful tool, already supported by the previous examples. Now there are two perspectives relating Media and Power as discussed in the same article by Lisle. First is the Pluralist perspective where the Media was believed to be simply the extension of public sphere in Ancient Greece. As the people receive the information, they debate about the issues of the day. The Media in this perspective serves as provider for public information and a watchdog on those in power. The Media is meant to keep the Government on their toes.  The Marxist perspective on the other hand entails that in our hierarchical society, the few people at the top are the ones who have power. They serve as a mouthpiece that the ruling class uses as a tool of persuasion; leading the public to believe that hierarchy serves everyone’s best interest.

     The power of the audience is viewed in the same manner as one in the Pluralist and the other in the Marxist. Pluralists assume that the audience takes the product driven by their values and consensus while the Marxists view the audience’s acceptance as molded by their culture, over-looking the elite power which the media replicates.

          Relating to audience reaction, Hall argues, Media messages are made up of codes that contain a number of possible interpretations depending on the receiver. The most evident position being taken by the audience is the Hegemonic position that when decoding, they accept the preferred meaning; blending well with their own political values. This tends to be idealistic especially when we have no personal experience to relate it to. Some may be based on movies that we later on discover are conflicts of the real deal. How then do we now read the media? Studying the Media proves to be important in decoding its real meaning and the information it regulates.

          As such, education is the best weapon we can use in classifying fact from fiction, reality from idealistic views and minimization from hyperbole.  There is more than what meets the eye.

Migration and Territoriality

We were born to explore the world – so how come the government controls us from traveling our own planet? Yes, the reason may be to protect national security, but isn’t it unfair for others to be deprived of their right to freedom?

People migrate illegally to avoid the expensive fares required to travel from one place to another. The licit way requires tedious exams, interviews and a big load of requirements to accomplish. In Mexico, we’ve learned from the assigned readings by Etkins that it has been a depressing issue on the increasing number of illicit immigrants. It left a bloody path, a move that they risked their lives to travel in that manner. Maybe it was because out of need or urgency to do it, but was it worth it?

There is a big difference between geography and territoriality. They are somehow used interchangeably but the former means the physical sense while the latter, the political sense. So the question is, why is the world, or a place, divided into states or territories? One factor is because of the economy.[1] Since each place is different and nourished with different resources, it is the duty of the people residing in that place to protect the resources found in their territory. They are in charge of propagating their land and country, as well. Every State has the obligation to protect its national interest. Another factor is to protect the inhabitants in each state. We are not born to be of the same class, race or language. The world is also divided into territories to avoid conflicts or war between each nation state because each place is different.

With that, the State has the power to impose such regulations. They have the legal authority to manage the economic affairs for the nation. This is called hegemony, if we follow Antonio Gramsci – an Italian political theorist.[2] Although they have supreme power, their power is limited only as to the betterment of the community.

Other source/s:

Why is the world divided territorially? Retrieved at http://adrianhull.posterous.com/why-is-the-world-divided-territorially October 2, 2011

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[1] Chapter 9 (Etkins), p. 205

[2] Chapter 3(Tereault), p. 37